Abstract
Purpose This paper aims to identify if there is an impact of the rating announcements issued by the agencies on the returns of the stocks of Brazilian companies listed on Brasil Bolsa Balcão, from August 2002 to August 2018, identifying which types of announcement (upgrade, downgrade or the same initial classification) cause variations in prices around the date of disclosure of the rating. Design/methodology/approach The event study methodology was applied to verify the market reaction around the announcement dates in a 21-day event window (−10, +10). The market model was used to calculate the abnormal returns (ARs), and subsequently, the accumulated ARs. Findings The hypotheses tests allowed to verify that the accumulated ARs are different, before and after the three types of rating announcements (upgrades, downgrades and the same classification); in upgrades, the mean of accumulated ARs increases in the days before the event, while in downgrades, this increase occurs after the event. This paper concluded that the rating announcements have an impact on the return of stock of the Brazilian market and that the market reaction occurs most of the time before the event happens, which indicates that the market can anticipate the information contained in the changes in credit ratings. Practical implications The results have considerable implications for portfolio managers, institutional investors and traders. It facilitates investment decision-making in the face of rating classification announcements. Market participants can pay more attention to their investment strategies and asset allocation during periods of risk rating announcements. Additionally, traders can understand the form of investment strategy for superior earnings. Originality/value The importance of the study is related to the fact that the results may explain the causes of specific movements in the Brazilian financial market related to a source of information that may or may not be able to influence the decisions of the financial agents that operate in this market. The justification is centred on the idea that, for investors who somehow react to the announcements, it is relevant to understand the impact of rating classifications on companies, as access to such information allows for more conscious decision-making.
Highlights
Rating agencies are private institutions responsible for providing market opinions about the credit quality of companies or countries (Micu et al, 2006)
Among the studies that have investigated the potential effects of credit ratings, Freitas and Minardi (2013) found significant impacts of the changes in the stock price of Latin American companies (Brazil, Argentina, Chile and Mexico), and the work of Murcia et al (2013), which achieved results indicating that the ratings have information capable of causing abnormal returns (ARs) in stock prices, especially when these rating announcements involve downgrades
The linear regressions that related the return of the assets with the returns of Ibovespa allowed to calculate the coefficients of intercept (a) and of variation (b ) for each event, that were applied in the market model formula to obtain the ARs for each day of the event window
Summary
Rating agencies are private institutions responsible for providing market opinions about the credit quality of companies or countries (Micu et al, 2006). Previous studies performed by Norden and Weber (2004), Morseth and Norgaard (2011); Galil and Soffer (2011), Freitas and Minardi (2013); Murcia et al (2013), Finnerty et al (2013); Bissoondoyal-Bheenick and Brooks (2015); and Kenjegaliev et al (2016) sought to understand, directly or indirectly, whether ratings issued by the rating agencies are capable of provoking reactions in investors, interfering or not in the price of different financial assets These studies have been developed in different parts of the world, covering completely different markets. Another study that investigated the impact of the rating changes was developed by Antônio et al (2018); the authors identified that there were no significant impacts on prices from the rating changes
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